Should You Consider A Structured Settlement For Your Personal Injury Award? What To Consider

If you were injured and the award for damages in your personal injury case is substantial, you may have the choice between taking one lump sum or a series of smaller payments through a structured settlement. If you choose the structured settlement, the proceeds from the injury case will go into an annuity and be paid out on a prescribed schedule. This is what you should know before you choose that option.

Why would anyone voluntarily choose not to get all the money at once?

A structured settlement takes some of the control over and access to the money that's yours out of your hands—and that can be a good thing. Many people who have hit sudden financial windfalls through things like wrongful death settlements and even lotteries find out that they are unprepared to manage their wealth. Money that should have lasted a lifetime ends up being spent, gambled, or given away.

The structured settlement is usually purchased as an annuity through an insurance company. Your attorney can help design your structured settlement with different features that are best suited for your individual needs, such as the following:

  • a large initial payment that provides enough money for you to pay off your existing debts so that you can more easily live on the subsequent payments
  • regular monthly, quarterly, or yearly payments
  • larger payouts that come at specific points (like when you turn age 30, 40, and 50, with a final payment of the balance at age 60)
  • the ability to take a larger payment under certain circumstances (for example, to pay for college, a wedding, or the downpayment on a house)

The main advantage of a structured settlement is that it keeps you from spending the money too quickly. You also won't be able to loan or give money away to relatives, friends, or strangers that want to hit you up for a few bucks. You may also be able to negotiate a greater structured settlement than you could a lump-sum payment because it generally costs less for an insurance company to buy the annuity that will cover future payments than it does to make the bulk payment.

What happens if you really need the money at some point?

One of the serious flaws in a structured settlement is that it is impossible to account for every possible future event. Sometimes people who have structured settlements want or need access to more money than their structured settlement allows. Many turn to a secondary industry, "factoring" companies that exist to buy settlements at a discount in exchange for immediate lump-sum payments. 

Since 2002, the law has required a judge's permission in order to sell a structured settlement for a lump-sum. This is designed to prevent abuses by the factoring companies. Unfortunately, the system doesn't always work. For example, take the case of Terrence Taylor. The survivor of a childhood accident that left him disfigured, Taylor also suffered from learning difficulties, which may have made him susceptible to abuse from others who used him for his money. It also made him a prime target for a factoring company that paid him only $1.4 million on settlement funds worth a total of $11 million. In order to prevent something similar, you may want to set up your settlement so that it needs a trustee's approval as well.

If you're expecting to receive a large settlement after an injury, talk to your personal injury lawyer about a structured settlement in order to protect your new-found wealth for the future.